OECD: Not Enough Imports Makes Israel An Expensive Place

While it seems that Israel is awash in foreign-made products of all kinds, the country actually ranks among the lowest for the percentage of imported goods relative to the entire market among OECD countries. In an OECD study, Israel ranked as importing 20 percent of the goods sold in the country, compared to 27 percent on average in the OECD.

That translates into a lack of competition, and could be why prices are higher in Israel than in other OECD countries, the report said. Especially low are the import rates for consumer “finished goods,” the products available to consumers directly, as opposed to those for use in finishing goods locally. Not having enough imports means that there is less competition in the economy, the report said.

Among the areas where local concentration is strongest is in the food industry, the report said. A typical five-member family in Israel spends NIS 3,250 on food per month, 16 percent of their total budget, and significantly higher than that spent on average by OECD member country residents. In OECD countries, imported food accounted for 30 percent of available products, while in Israel that number was 11 percent.

One consequence of this situation, the report said, was the high concentration of market shares among just two or three major players in various areas. For example, two companies – the bottlers of Coca Cola and Pepsi – control 98 percent of the cola market. Ninety-six percent of the Turkish coffee sold in Israel is made by Elite, and 97 percent of the salt is marketed by one company as well.

In recent months, the Finance Ministry has begun working to remove duties on various food products. Israel has relatively high import duties on many manufactured food products; in addition, the country significantly limits the amount and kinds of products that can be imported. These limitations were imposed to protect Israeli growers and producers, in order to ensure that the country could remain self-sufficient and not become dependent on imported food. However, the limits on imports have given many large food producers who dominate the market in specific areas license to keep prices artificially high – because they have no significant competition, according to many economists.

In a speech last month, Prime Minister Binyamin Netanyahu said that one of the keys to solving the “price crisis” in Israel was to remove import duties on many kinds of imported food products. Doing so, he said, would increase competition and force Israeli food manufacturers to make do with less profit.